Edited version of private advice

Authorisation Number: 1051624512408

Date of advice: 17 January 2020

Ruling

Subject: Gambling activities

Question 1

Are your gambling activities regarded as a business for taxation purposes?

Answer

No.

Question 2

Is the income from your gambling activities regarded as assessable income?

Answer

No.

Question 3

Are you entitled to a deduction for your expenses incurred in relation to your gambling activities?

Answer

No.

This ruling applies for the following periods

Year ending 30 June 2020

Year ending 30 June 2021

Year ending 30 June 2022

Year ending 30 June 2023

The scheme commenced on

1 July 2019

Relevant facts

You are planning to commence a gambling system.

You are a professional who has training in statistics and believe that you can make a profit on your betting system.

You are a full time employee.

You do not have any formal training or work experience in gambling.

You anticipate incurring costs of approximately $xxxx in computing and data licencing to set up the system. You will not obtain a gambling licence.

You expect to spend two to three hours each week on your gambling activities. You leave the system running 24 hours a day seven days a week subject to performance.

You will do this out of enjoyment and for profit. You are not part of a syndicate.

You have no business plan. You are using mixed methods and models. By testing and monitoring the various strategies, you can make informed decisions.

You are starting your gambling activities with horse racing, both Australian and international. You may try other gambling later.

You do not breed or train horses.

Your loss limit is $xxxx.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 paragraph 118-37(1)(c).

Reasons for decision

Carrying on a business

Under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997), the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Where a person is carrying on a business of betting or gambling, the associated income is assessable as business income under subsection 6-5(2) of the ITAA 1997.

Therefore it is necessary to consider whether your gambling activities are regarded as a business.

Business is defined in section 995-1 of the ITAA 1997 to be 'any profession, trade, employment, vocation or calling, but does not include occupation as an employee'.

The question of whether a business is being carried on is a question of fact and degree.

Taxation Ruling IT 2655 Income tax: betting and gambling - whether taxpayer carrying on a business of betting or gambling discusses the Commissioner's opinion on whether betting and gambling can be considered to be carrying on a business.

The ruling notes that ultimately, each case will depend upon its own facts, however the criteria identified in Brajkovich v. FC of T 89 ATC 5227;(1989) 20 ATR 1570 (Brajkovich) and the factors considered in the cases of Evans v. Federal Commissioner of Taxation (1989) 20 ATR 922;89 ATC 4540 (Evans) and Babka v. Federal Commissioner of Taxation (1989) 89 ALR 373;20 ATR 1251;(1989) 89 ALR 373;89 ATC 4963 (Babka) should be taken into account.

The matters to be considered are:

·   whether the betting is conducted in a systematic, organised and businesslike way;

·   scale: that is, the size of the wins and losses;

·   whether the betting is related to, or part of, other activities of a businesslike character, for example, breeding horses;

·   whether the activity is engaged in principally for profit or principally for pleasure;

·   whether the form of betting chosen is likely to reward skill and judgment or depends purely on chance;

·   whether the gambling activity in question is of a kind which is ordinarily thought of as a hobby or pastime.

Taxation Ruling TR 2005/15 Income tax: tax consequences of financial contracts for differences at paragraph 43 establishes that there are two factors that differentiate between profit-making and gambling:

·   the chance-to-skill spectrum; and

·   the private/recreational-to-commercial spectrum.

The conventional forms of gambling have a strong association with the concept of recreation and in some cases, are a social or community activity.

A mere punter may be carrying on a business, however the intrusion of chance into the activity as a predominant ingredient will generally preclude such a finding.

Application to your circumstances

In your case, the lack of a structured business plan does not support a business like operation. You will not form a syndicate. Although you use various models, you will use your own judgement to determine which bets to place with reference to past results, rather than having any control or influence over the outcome of the race. You will devote a relatively low amount of time to the activity.

After weighing up the relative indicators and objective facts surrounding your individual circumstances, it is not considered that your personal gambling activities will be conducted in a sufficiently systematic and businesslike manner to support the carrying on of a business of gambling. As you are not carrying on a gambling business for taxation purposes, your winnings will not be assessable income and you will not be entitled to claim deductions or losses for costs or outgoings incurred in relation to your gambling. Furthermore, any capital gain or capital loss from gambling is disregarded under paragraph 118-37(1)(c) of the ITAA 1997.

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